Retiring and Moving -- Pension Question

[PhillyGuy]

My mother just turned 66, lives in Pennsylvania, and has reached her full retirement age, and is now still working while collecting Social Security.

She is eligible to receive a pension from her job when she retires. She has also purchased a place in New Jersey where she plans to move after she retires and sells the place in PA.

Here's the problem. She borrowed money on the current place to put down on the new place. Therefore, not only is she paying payments on the loan, but also has a mortgage on the NJ place.

She read that PA charges no state tax on retirement funds, but on the contrary, NJ is one of the worst states for taxing pensions.

Her concern is that when she does finally retire and collect the pension, does it matter where she lives at the time? Does she need to retire and collect the pension before she moves, or can she do it in 2015? Being that it's possible she may spend most of 2015 in NJ, will they automatically tax the pension in her 2015 income, or will she be able to claim partial residency in PA, and NOT have it taxed?

I'm not even sure I'm phrasing it well. She's very upset, trying to time the moving and retiring so that she can save the most money.

Thanks for your help!

[sblatner]

Is the pension paid monthly? If so, I would think she would owe taxes each year on the pension in the state where she lives. So, if she lives in PA when she retires and PA doesn't tax pensions, then she would owe no tax. If she moves to NJ and collects her pension, she will have to pay taxes on that amount.

I'm not sure if there is a certain number of days she can live in a state before she is a resident. It also will probably matter if she registers her car, gets a DL, etc.).

She should probably talk to an accountant to figure out the exact rules.

[PhillyGuy]

Sorry, forgot to mention that. It's a single lump-sum payment.

[Drake3287]

I think it would be based on where she legally lives when she received these funds. This of course would be what she puts down on her federal and state tax forms as a residence. Interesting question, being a lump sum might also make a difference.

Living here in California with many of us being high income public employee's ($100,000+) it's not unusual to have people move out of state upon retirement in order to not pay state income taxes on these funds. If I remember right I think there's something like 15 states that don't tax these retirement funds. I've had more than a few friends move to Hawaii and this was just one of the deciding factors.

[~bs]

Don't quote me on this, but I believe what matters is the state you declare residency in, not the state your pension originated in. A lot of people move to pension friendly states once they start collecting.

Hawaii, where I reside, is one of those states that doesn't tax pensions, but does tax 401k. Despite the high cost of living, it's one of the deciding factors that spur many retirees to move here from other states.